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Newsmakers : Make Trade, Not War!

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It makes a good bumper sticker, but does it really make sense? According to recent research, it does. Sort of. Iran, for example, offered to send the US 20 million barrels of crude oil in the aftermath of Hurricane Katrina, but only if the US agreed to waive trade sanctions. The offer was rejected because it was conditional, according to the US State Department. Meanwhile, UK prime minister Tony Blair, on a visit to New Delhi in September, praised an EU trade and security agreement with India. Blair, the current EU president, described the pact as a long-overdue turning point in relations between the EU and India, Britain’s former dependency. For India’s part, prime minister Manmohan Singh unveiled an order for 43 Airbus jets valued at about $2.2 billion.

These two separate events last month once again raised the question of whether trade can prevent international conflict. The answer is not so simple, according to a study released in September by the London-based Center for Economic Policy Research. An increase in trade between two countries reduces the probability of conflicts between them but raises the probability of conflicts with other countries, the study found.

“The rationale is that globalization, by enabling trade links with distant regions, has reduced countries’ dependency on local trade and thus reduced the opportunity costs of local wars,” according to the study. The results were derived from an econometric model that was used to analyze data on military conflicts between 1948 and 2001.

The paper was written by Philippe Martin of the University of Paris, Thierry Mayer of the University of Paris-Sud, and Mathias Thoenig of the University of Geneva. The authors said their work was motivated by the growing concern that the end of the Cold War did not contribute to pacifying international relations.